Do you often find yourself struggling financially? Sometimes we want to improve that part of our life but don’t see a way forward.
One of the main reasons this happens to people is that they’re not setting financial goals. However, there is a way for you to achieve your financial dreams through goals and investing in ways to reach them.
Every person should have a financial goal, no matter the state of life they’re in. There’s always something to improve, no matter how small or big the concern.
Those that find themselves in difficult situations may want to ease into it. No matter what, setting goals will be instrumental in leading you to where you want to go and building wealth for your future.
What Is a Financial Goal?
A financial goal is an anchor that guides your actions to help you reach where you want to be. For example, you can set a goal to live a more comfortable lifestyle this year.
To achieve that goal, you’ll have to take steps toward it. This may be getting a new job with higher pay, asking for a raise or promotion, or changing how you spend your money.
There are two types of financial goals you want to think about. Short-term goals you want to achieve within a year or less, and long-term goals that will take years to build.
Examples of short-term financial goals include:
- Saving for a vacation
- Creating an emergency fund
- Paying off any remaining credit card debt
Long-term financial goals can be anywhere from retirement savings to investments. You may not achieve any of those goals, but it helps you think about what you can do to reach them.
For example, if you can pay X amount a year, you’ll be free of your mortgage in 10 years at the most. You’ll begin formulating a plan and thinking about alternative ways to accelerate your path to your goals.
Why are Financial Goals Important?
Creating financial goals gives you a focus. Aimlessly saving money without them will often lead you to stray from your path and end up unfulfilled.
When you know that what you’re doing is leading to something, it’s a little easier to make sacrifices. You can save money for a while or stick to a budget because you know that the outcome will be there to keep you diligent.
Eventually, you’ll create a habit of it, and reaching your financial goal becomes easy. You’ll adjust and find ways to maintain the things you want without stretching your finances.
Financial goals also act as a motivator. You can invest your money because it can grow the longer it stays in the market. This inspires you and helps you envision a better future.
Another thing that financial goals are good for is that they act as your accountability. You’ll be able to look back at your performance and know if you’re on track or not.
Financial goals help you keep track of your progress, whether it is for yourself or someone else. You can also talk about them with someone who will help you stay honest in your path.
Sometimes we forget what we want to do when we become busy with other things. If you set and write down your goals, this will remind you of what you need to focus on.
Finally, the best part about setting a goal is fulfilling it. Knowing that you spend a long time and effort towards fulfilling something is its own reward.
Not only can you say that you’ve improved financially, but you will also be able to back it. You’ll have a ready emergency fund you can rely on during unexpected times.
Examples of Financial Goals
You can have many financial goals, but where do you start? You may be asking yourself about your focus.
You may also start wondering about any possible things you may have missed.
Here are some of the most common financial goals that can benefit you in one way or another. Knowing about them can help set your path and make it easier for you to weigh your priorities.
Let’s look at each one by one:
Create an Emergency Fund
An emergency fund is a lifesaver once you have it set up. It’ll help you avoid unnecessary debt that could cost you more in the long run.
Being prepared financially is always good as you’ll have the money you need during emergencies. You don’t want to be in financial straits when you experience any of the following:
- An accident: In the case of an accident, you want to ensure you have cash prepared for costs that may not have insurance coverage.
- Car repairs: Your car is important, and you should have money ready for repairs if it breaks down.
- Broken appliances: When something breaks, you have the money to buy a replacement or buy a better model.
- Job loss: During job loss, you lose an income source. When this happens, you still want to maintain a somewhat comfortable lifestyle as you search for the next opportunity.
Many experts recommend saving anywhere from six months to a year’s salary in an emergency fund.
Pay Off a Loan
You may have a sizable loan, like the one you used to pay for a car. You won’t be able to pay it immediately, but it’s something you can tackle in a shorter time than a mortgage.
Most people will be able to pay off their vehicle within a few years.
Paying off that loan requires you to set a strategy to make sure you’re meeting at least the minimum a month. From there, you can begin seeing how you can pay extra to accelerate your freedom from it.
Once paid, the money you committed to it will now be free for use, and you can allot it to other financial goals.
However, you may want to hold off from taking another debt after paying it off. Don’t rush to buy a new car because your current one is an investment.
It’s also a form of liquidity you can later sell when you want to buy a new vehicle.
Paying off a loan can also apply to other things. Some of the most common debt people have include:
- Credit cards
- Student loans
- Mortgage
- Business loans
- Personal loans
Saving for the Future
There are many things you’ll spend years paying off in the long term. The two that come to mind are retirement and college education. For retirement, you’ll likely work on it for most of your life.
That means knowing the different accounts available to you and optimizing your contributions. You may want to set up a 401(k) or another retirement plan if you haven’t done so yet.
You want to start saving for retirement early because the more time the money is in the market, the more opportunities there are for it to grow. Its earnings can compound and quickly become a significant income source during retirement.
Even starting small can work, especially if you’re in the early years of adulthood, in your 20s.
Another thing that people save money towards is a college education for their children. It’s no secret that college can become financially stressful because of the high cost.
Having enough money to support their children’s education is the goal for many parents. However, getting there can take some time.
Aside from savings, you may also look to other avenues for growing your money. There are college-specific accounts with protection and adequate growth to assure someone’s path to college.
You can also pursue other investments to store and grow that money over time.
Saving for Pleasure
There are many other things you could be saving up to enjoy soon. It may be something you couldn’t usually purchase with your regular income stream.
It can be anything from travel to buying a more expensive item. Setting a financial goal ensures that you are making steps towards that goal, helping you get it much faster.
It’s not uncommon for people to have several things they want to buy that require some savings. Doing so diligently and achieving it is a reward.
It also helps you build that habit when you know that you’re doing something that leads to getting what you want. You’ll find it easier to stay on track with longer-term goals.
How Do You Set Financial Goals?
“The speed of your success is limited only by your dedication and what you’re willing to sacrifice” - Nathan W. Morris
Goal setting is easy and requires only a bit of your time. You can do it in whichever way works best for you. Many find that writing goals down in a notebook, computer, or mobile phone can be enough to help set things in motion.
1. Write Everything Down
The first thing you need to do is write everything down.
- What are the goals you want to achieve?
- Is there anything you want to buy?
- Is there a financial concern bothering you?
List everything you can think about right now. Don’t worry if you’ve missed anything, as you can add more to your list.
From there, you want to make sure that your goals are feasible. It might not make sense for you to travel abroad next month when you don’t have anything saved yet.
Many of these things take time, so set goals that have timeframes that are realistic for you to achieve.
2. Set a Priority For Each of Your Goals
You want to sort your goals based on when you’ll fulfill them.
There are short-term goals that you can complete within a year or two. Then there are mid-term goals which may take five years, give or take.
For longer-term ones, these are the ones you’ll likely save for most of your life, like saving up for retirement.
Set a priority for each goal. You can try focusing on one short, mid, and long-term goal at a time.
3. Create a Financial Plan to Achieve Your Goals
From there, you can list steps on how you want to achieve these goals.
For example, based on your income, you can save around $100 a week, staying within your budget. For each week, you can allot that $100 to your goals. Let’s say your current goals are:
- Buying a new TV
- Accelerating car loan payments
- Saving for retirement
You can then allot the $100, depending on which one you want to prioritize. You may place $50 on the new TV, $30 on the car loan, and $20 on retirement.
In a month, you’ve saved up $200 for the TV, $120 for the car loan, and $80 for retirement. It doesn’t seem that much at the moment until you’ve extrapolated it to a year:
In a year, you’d have $600 for the TV, $360 extra to pay off the car loan, and $240 going into your retirement account. It all depends on your allocation and priorities.
You then want to find out ways to increase your contributions to each. Some of the steps people take to accelerate their financial goals include:
- Setting a stricter budget and leaving allocation for a specific goal.
- Taking on an extra job or side hustle that goes directly toward a goal.
- Putting money in investments, so they begin growing and help you reach your goal faster.
Putting It All Together
Setting financial goals is necessary for everyone because it helps give our lives direction. Every step you take after can either help or hurt those goals.
You can become accountable, understand your progress, and know what results to expect when you fulfill your goals.
Goal setting doesn’t have to be difficult. It all starts with writing them down. From there, you can think about what you can do to progress those goals.
Results won’t happen immediately, but small steps over long periods can make a huge impact and bring success.
When you need financial assistance from a team that cares, consider becoming a member of 121 Financial Credit Union. You can set up a savings account for your goals or get advice on what to do to accelerate your path toward them.
Contact us today to learn more.